OROP to Cost Much More Than Estimated: Report

It will also reduce the government's ability to meet its fiscal deficit target this fiscal

September 7, 2015 16:53 IST

The "One Rank One Pension" (OROP) scheme for ex-servicemen will cost the Modi government much more than the estimated figure of about Rs 10,000 crore.

The government on Saturday gave its nod to the OROP scheme, a long-pending demand of ex-servicemen. The OROP scheme will be applicable from 1 July, 2014 as against the ex-servicemen's demand to fix 1 April, 2014 as the effective date for implementing the scheme.

The government had said the implementation would entail an additional burden of Rs 8,000 crore to Rs 10,000 crore annually on the exchequer.

But analysts estimate the cost to the exchequer to be much higher than the government's estimate.

"We estimate the overall cost to be Rs 16,000 crore or 0.1 per cent of GDP in FY16... The existing defense pension bill will go up by Rs 10,000 crore, while arrears totaling Rs 12,000 crore will be paid out over two years," Pranjul Bhandari, chief India economist of HSBC Global Research, told NDTV Profit.

With analysts already raising doubts over the government's ability to meet its fiscal deficit target of 3.9% of the gross domestic product (GDP) in the current financial year, the OROP announcement is expected to further strain its finances, given the banks recapitalisation move announced recently.

The government has announced a capital infusion of Rs 25,000 crore in public sector banks compared to Rs 7,940 crore earmarked in the budget.

The government is also unlikely to meet its disinvestment target, given the high volatility in the domestic stock markets. The benchmark indices are currently trading at 14-month lows amid turbulence in the global markets.

"The disinvestment receipts target of Rs 69,500 crore looked rather rich. Even in the previous year, FY15, the government budgeted for Rs 63,400 crore but ended the year with about half of that," HSBC said.

However, a decline in global crude oil prices is a positive factor for the government, as it significantly reduces its subsidy bill.